What to look for in a Supply Agreement

If you are running a business that is supplying or receiving goods or services, then you will probably recognise the need for a supply agreement. Supply agreements are generally drafted so that both parties understand the terms and conditions of the commercial relationship, which reduces the possibility of disputes later on.

What to look for as a customer

There are several things (which we have set out below) that you should be looking for in a Supply Agreement if you are the customer. If any of these are missing, you need to discuss them with the supplier.

What goods are you receiving? It is important that the agreement is clear on what it is that you are getting for your money.

Is there a time restriction on delivery of goods? If the answer is yes, the agreement should also spell out your rights if delivery is not made on time.

If you are being provided with a product that contains intellectual property – will this intellectual property be assigned to you? Or, have you been provided with a license to use this intellectual property?

How adequately do the suppliers protect your interests as a customer? If you have any concerns about your rights under the Australian Consumer Law, you should speak with a small business solicitor and have these addressed.

Is there a limitation of liability for the supplier? You should check to ensure that you are covered in the event that something goes wrong by looking at the liability cap (the amount the supplier will be liable for), as well as considering inserting any relevant ‘carve-outs’.

What to look for as a supplier

Now let’s look at the flip side. What should you be looking for as the supplier in a Supply Agreement?

How and when do you expect to be paid? Receiving payment upfront is often the best way to ensure that you are paid. However, this is not always an attractive option for your customers. If you invoice regularly, or take part payment, we recommend that you speak with a small business solicitor to discuss the relevant clauses that could be inserted into the Supply Agreement to enforce your rights to be paid.

What warranties are you providing? You need to be aware that you cannot contract out of the warranties you must provide under the Australian Consumer Law. However, there is no need to go excessively beyond the standard warranties. Businesses are generally not required to provide refunds simply for change of mind.

What are your rights to terminate? If you have customers who you regularly supply to, it may be extremely detrimental to their business if you can terminate without notice and at any time. Chances are, the customer wouldn’t agree to such a clause (especially if they had a good business solicitor on their side). Normally there is a notice period that is required to terminate a Supply Agreement; you should check these notice periods to ensure that they’re reasonable.

Are you providing any intellectual property? If so, the Supply Agreement should be clear on whether you retain full ownership or if you assign all the rights in the intellectual property on full payment. This may help avoid intellectual property infringement claims by the customer or other third parties in the future.

Conclusion

Whether you are a customer or a supplier, if you are entering into a Supply Agreement and unclear of your rights and obligations under it, you should speak with a small business solicitor. You should never enter into an agreement if you are uncomfortable or confused about any of the clauses.

If you are looking to have a supply agreement reviewed or drafted by an experienced small business solicitor, call LegalVision on 1300 544 755 and we will provide you with a fixed-fee quote.